Warehouse Receipts Development

The farmers normally sell the produce immediately after harvest because there is no arrangement for storage and farmer has immediate need of money for his livelihood. They often need to settle loans taken from money lenders and banks for cultivation or consumption needs during lean period and to make payments for inputs taken on credit. However, the prices usually tend to be low during harvest season and increase later. Because of this, there is a glut of the produce in the market after harvest and the farmers have to sell under distress. The realization of the produce is very low as compared to the prices which could be realized after 4-5 months from the harvest, i.e. during the lean season. The problem can be addressed by providing scientific storage and interim financial credit to the farmer against the stored agricultural produce.

Since 1990, Maharashtra State Agricultural Marketing Board (MSAMB) has successfully supported a Pledge Loan Scheme operated by selected APMCs. Under this scheme, farmers obtain loans to the extent of 50-75% of the value of the commodity they store in APMC godowns. These loans are provided by APMC using funds provided by MSAMB. The APMCs participating in this program have a 100% repayment rate on loans made under this program. However, limited funds available with MSAMB for this activity have limited the number of farmers who are able to benefit from this service provided by APMC. Hence, the project proposes to enhance access to this service by facilitating the expansion of the warehouse receipt financing for farmers through selected godowns of Maharashtra State Warehousing Corporation (MSWC). The scope would increase further with the Warehousing Act of 2007 which allows private godowns getting accredited for warehouse receipt through financial institutions.

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The farmers normally sell the produce immediately after harvest because there is no arrangement for storage and farmer has immediate need of money for his livelihood. They often need to settle loans taken from money lenders and banks for cultivation or consumption needs during lean period and to make payments for inputs taken on credit. However, the prices usually tend to be low during harvest season and increase later. Because of this, there is a glut of the produce in the market after harvest and the farmers have to sell under distress. The realization of the produce is very low as compared to the prices which could be realized after 4-5 months from the harvest, i.e. during the lean season. The problem can be addressed by providing scientific storage and interim financial credit to the farmer against the stored agricultural produce.

Since 1990, Maharashtra State Agricultural Marketing Board (MSAMB) has successfully supported a Pledge Loan Scheme operated by selected APMCs. Under this scheme, farmers obtain loans to the extent of 50-75% of the value of the commodity they store in APMC godowns. These loans are provided by APMC using funds provided by MSAMB. The APMCs participating in this program have a 100% repayment rate on loans made under this program. However, limited funds available with MSAMB for this activity have limited the number of farmers who are able to benefit from this service provided by APMC. Hence, the project proposes to enhance access to this service by facilitating the expansion of the warehouse receipt financing for farmers through selected godowns of Maharashtra State Warehousing Corporation (MSWC). The scope would increase further with the Warehousing Act of 2007 which allows private godowns getting accredited for warehouse receipt through financial institutions.

This sub-component aims to improve access to price risk management services for farmers. Availability of finance against stored produce and improved knowledge on price risk management allows farmers and farmers’ organizations to obtain better price realization for their produce.

In addition, trading through Electronic Commodity Exchange provides an alternative marketing channel, which increases potential for better price realization. With the amendment of the APMC Act in Maharashtra, establishment of Electronic Spot Markets that allow online trading trough electronic commodity exchanges (outside APMCs and across state boundaries) have become possible. The National Commodity and Derivative Exchange Limited (NCDEX), the Multi Commodity Exchange Limited (MCX), and National Spot Exchange Limited (NSEL), three national commodities exchanges, are in process of setting up systems that make this feasible in Maharashtra. Hence, the project proposes:

  • To build capacity of farmers on price risk management for Cereals and Pulses PAs, and the associated PGs,
  • To support a pilot activity that will provide access to trading through Commodity Exchanges for farmers, and,
  • In parallel, work in partnership with the MSWC to support the emergence of this new trading conduit through capacity building, upgrading of Godowns and facilitating access to trading screens.
MSWC has more than 800 warehouses with around 12 lakh tonnes of storage capacity. In agricultural producing areas utilization of storage capacity of godowns is more than 75%. Overall utilization of MSWC’s warehouse capacity is 89%. Finance against warehouse receipts of MSWC provided by banks was Rs. 184.59 crore. The negotiable receipt credit against warehouse receipts of MSWC is increasing every year. Initially 40 godowns of MSWC have been identified for warehouse receipt scheme program. MSWC has already entered in to agreement with NCDEX Spot , and, tie up between NCDEX Spot and the Banks for Warehouse Receipts Scheme through MSWC has been done.
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